After years without comprehensive health insurance, a 64-year-old Media woman was thrilled to learn that based on her 2019 income she qualified for a tax credit that would entirely cover the premiums for a solid 2020 plan on the state insurance marketplace.

But then the pandemic hit. In an unexpected twist, her 2020 income soared to more than $50,000, thanks to unemployment payments, Social Security and IRA distributions. The woman, who asked not to be identified to protect her financial information, just found out from her tax preparer that she was no longer eligible for the credit she’d received. In fact, she may have to pay back $10,000.

“I was shocked,” she said. “I still don’t understand it.”

The Affordable Care Act health insurance marketplaces have been a lifesaver for thousands of people who lost employer-sponsored health plans during the pandemic last year. Pennsylvania saw a 9.7% increase in new enrollees in its marketplace, Pennie, during the 2021 enrollment period.

Pennie, New Jersey’s marketplace Get Covered NJ, and the federal healthcare.gov have reopened for a special COVID-19 sign-up period through May 15.

The vast majority of people who sign up for a marketplace plan are eligible for a tax credit to reduce their monthly premium. But the tax credits are based on estimated annual income — which may be especially hard to predict during such financially uncertain times. People whose income fluctuated significantly during the year may be in store for a tax season surprise: having to pay back part of their premium tax credit if they earned more than they expected.

“This is not going to be an uncommon problem for many, many tax filers who had subsidies through the marketplace,” said Sabrina Corlette, codirector of the Center on Health Insurance Reforms at Georgetown University.

People who owe for 2020 may be in luck. Under the pandemic relief package passed by the U.S. House of Representatives early Saturday and sent to the Senate, no one would have to pay back tax credits. But the future of that legislation is not entirely clear.

With 2021 shaping up to be an equally unpredictable year, people who buy health insurance through the state or federal marketplaces should take time to understand what counts as income and what to do if their estimated income changes during the year.

» READ MORE: Pandemic unemployment spurs health insurance marketplace enrollment as exchanges prepare to reopen

How ACA tax credits work

Tax credits are available for marketplace shoppers whose annual income is within 400% of federal poverty — just over $51,000 for an individual in 2020. The size of the tax credit depends on age, household size, where you live, and income, with low-income individuals receiving the most help.

Income can come from several sources:

  • Wages from a job

  • Unemployment compensation

  • Social Security payments

  • Retirement account or pension fund distributions

  • Investment dividends

Federal stimulus payments during the pandemic do not count as income for the purpose of calculating marketplace tax credits.

How to avoid surprises

Estimating income can be difficult, especially for people who are freelancers, contract workers, or work in the gig economy. It’s not uncommon for people with fluctuating incomes to have to pay back a portion of a tax credit — or get a bigger credit than expected, said Joanna Rosenhein, a community engagement specialist with Pennsylvania Health Access Network, which helps people sign up for insurance and Medicaid.

“It’s around tax time we get the calls — they’re doing their taxes on their own or with a preparer, they owe money and don’t understand why,” Rosenhein said. “It’s really just that their estimated income was underreported.”

People whose income increases but remains below 400% of federal poverty can be asked to pay back only a portion of their tax credit, up to $1,350. People whose income rises above 400% of the federal poverty level may be on the hook to pay back more.

The process has been complicated for people whose income has fluctuated because of the pandemic.

“We’re seeing a lot of folks who have unemployment income and aren’t sure what their situation is going to look like later in the year and that creates a lot of stress,” Rosenhein said.

There are a couple ways to lessen the likelihood of a tax-time surprise:

  • Update your financial information with the marketplace within 30 days of a job change or other significant shift in your income so your tax credit can be adjusted.

  • Take only a portion of the tax credit for which you’re eligible. If your income increases, you’ll owe less at tax time and if your income projection is on target, you’ll get the remainder of the tax credit when you file taxes.

» READ MORE: Medicaid enrollment soars as Americans lose jobs to pandemic: ‘I never thought I’d experience this’

More help may be on the way

Rosenhein and Corlette urged people who have lost job-based insurance or are otherwise uninsured to consider signing up for a marketplace plan, even if the process can seem daunting.

Congress is considering as part of its COVID-19 relief package rules that would increase the amount of tax credits for marketplace plans and extend financial assistance to people with higher incomes.

For instance, anyone earning less than 150% of the federal poverty level — about $19,000 for an individual — would be eligible for a $0 premium plan.

People who had previously gone without coverage because they earned too much to qualify for a tax credit but could not afford the full price of the plan may be able to get covered.